The role of public policy in the concentration of powers and social inequality

As controversial as it may still be for some, the historical involvement of the International Monetary Fund (IMF) in the development of Arab world countries over the past three or four decades—Jordan included—is a perfect of representation of the chronic foreign dependency of many of region’s (e.g., modern Levant) countries in the new millennium: A seemingly insurmountable dependency on support from bilateral and multilateral partners, under an almost permanent state of domestic or regional tension.

The countries of the region have thus repeatedly resorted to borrowing from the IMF in order to fund their economic growth, withstand endogenous and exogenous shocks of various kinds, and pursue multiple development projects. Much as in other parts of the world, here the IMF has often leveraged its position as lender to promote a specific vision of development by tying the disbursement of its loans to Structural Adjustment Programmes (SAPs), policy conditions, and other prerequisites which the beneficiary country must either implement or fulfil to gain access to the much-needed funds.

Jordan has been one such country. Of course, Jordan’s political, social and economic predicaments have almost always been at least partly due to exogenous factors far beyond the State’s control, such as the occupation of Palestine, the invasion of Kuwait, then of Iraq, and so forth. However, at the national level, the social and economic policies adopted over the years not only contributed to consolidating the country’s external financial dependency, but left large swaths of its population unemployed, living in some form of poverty, with many struggling to cover their daily necessities. In the meantime, the State and non-State institutions—particularly those of a democratic nature and civil initiatives—which could oppose these policies have seen their roles and powers progressively limited: Political power has become increasingly concentrated in the hands of the Government, which has in turn made sure to keep civil society highly limited in its ability to act meaningfully.

At times, it is difficult to determine whether certain policies were ‘recommended’, (prescribed) by the IMF, or whether they were the initiative of another institution—Jordanian or otherwise. Regardless, it is soundly arguable that the various policies prescribed, promoted, encouraged and advocated for by the international financial institutions (IFIs) in Jordan since it first became involved in the country have been socially, politically and developmentally careless, resulting in among other things, concentration of political powers, increased social inequality, and increased bias in the consideration of labour affairs and worker-employer disputes.

From the mid-1980s onward, Jordan’s economy has suffered successive waves of endogenous and exogenous social and economic shocks. Between 1988 and 1990, the Jordanian economy went through a recession, punctuated by the 1989 currency and banking crisis. GDP per capita, investment and quality of life all sharply declined. As recruitment halted and wages were frozen in the public sector, riots erupted in various governorates throughout the country. By the turn of the decade, in addition to high inflation and levels of both domestic and foreign debt, the historically stable national currency had collapsed, and living costs had risen by nearly 26 percent.

Thus, seeking to revitalize the economy and address the country’s structural flaws, the Jordanian Government signed the first of several agreements with the IMF and the World Bank in 1989. Ultimately, however, several of the policies subsequently implemented—notably, numerous IMF ‘recommendations’ (e.g., usually various ‘conditionalities’ tied to the release of loan funds) including the liberalization of interest rates, only seemed to further exacerbate the country’s imbalances: Interest rates (to some, predictably) quickly began to escalate beyond control, flooding the market with nonperforming loans, and triggering a run on banks, which left several insolvent. At the same time the Government was forced to inject the equivalent of 10 percent of GDP into the financial sector to address the situation.

The IMF agreement also required that the Government to implement strict austerity measures, so as to control budget deficits; subsidies on fuel, beverages, and cigarettes were promptly cut. The slowing down of the economy, coupled with the prioritization of economic over social indicators, led to a steep decline of average living conditions, quickly reversing the country’s achievements in the struggle against poverty and inequality over the previous years, with poverty levels reaching nearly 20 percent as unemployment skyrocketed.

Throughout the 1990s, ‘fiscal consolidation’ was prioritized above all else. As per IMF (and World Bank) recommendations, this was sought via the swift privatization of numerous State-owned enterprises, the deregulation of prices, tax increases, tariff reductions, the continued reduction and elimination of public subsidies—and although poverty levels did decrease throughout the decade, by 2002 they were back to early-1990s levels. Meanwhile, the pursuit of a ‘business-friendly environment’ translated into more flexible wage and hiring and dismissal policies.

Between 2005 and 2012, Jordan did not sign any Stand-By Arrangements (SBAs) with the IMF. Yet, the country largely continued to follow the same policies which had been prescribed before. When a new, 2012 SBA announced by the Government threatened further austerity, protests ensued. The IMF and the Jordanian Government both underlined the need for an ‘inclusive growth strategy’; one which would take into account the social impact of implementation.

Ultimately, however, no effective social safety nets were provided: Yet another wave of austerity measures was implemented, further deteriorating living conditions, particularly among the poorer segments of the population. With the massive informal economy employing nearly half of the national labour force, and the continued implementation of business-friendly labour policies, unemployment rose and average income levels dropped. Many began to see their ability to afford basic commodities threatened—a predicament termed ‘transient poverty’. Among unskilled workers, waves of migrant workers and refugees (many desperate) have saturated the market—one hardly bound by any minimum-wage constraints—triggering a race to the bottom, as it were, in the informal economy, such that those who were hired were those who worked for the lowest pay.

By 2015—and increasingly since—numerous political and legislative institutions had been severely weakened. The impact of civil society in meaningful public policy debate had all but vanished, and nearly all instances of social dialogue on labour issued seemed to have been predetermined in favour of employers. With the Independent Federation of Jordanian Trade Unions operating almost clandestinely--only the pro-status quo General Federation of Jordanian Trade Unions (GFJTU) is allowed to operate officially, the possibilities for productive social dialogue and the development of policies based on settlements between workers, employers and government, began to seem ever more distant. In short, freedom of association and the conditions for meaningful collective bargaining, respectively, seem to be under threat, and all but gone, within the country.

In 2016, the Government approved a new series of measures aimed at achieving ‘fiscal consolidation’ as a condition for unlocking access to IMF aid. Additional austerity measures were thus implemented, leading to rises in fuel prices, as well as in both sales taxes and customs duties. The assessment report mentioned above reflected, furthermore, the Fund’s confidence that “further fiscal adjustment and decisive structural reforms… [would] eventually reduce the need for donor support”. However, such results are yet to be reaped.

Finally, it is important to underline how the Jordanian tax system, as well as the tax policies implemented by successive governments, with or without IMF support, still continue to disproportionately impact the poor. The vast majority of Jordan’s tax revenues come from indirect taxes, with most goods and services subject to similar tax rates (commonly, the unusually high 16% VAT). In short, the bulk of the taxes (e.g., indirect taxes) are charged independently of the contributor’s level of income. In contrast, through direct taxation, the State is able to tax richer citizens more and poorer citizens less—thus using taxation as a tool to curb inequality.

Yet, these policies have been difficult to oppose, as, over the years, the Government’s powers in determining tax policies have been progressively extended. Article 6 of the General Sales Tax Law 6/2000 endowed the Council of Ministers with the power to issue special regulations determining the figures pertaining to such taxes, which of course gives the Government carte blanche to expand the base of taxable goods and services, through either general or special taxes.

The policies discussed above, implemented by successive governments and which, over the past decades, have been repeatedly prescribed, recommended and defended by the IMF, have, for the most part, disproportionately impacted the poorer segments of the country’s population by disregarding the importance of social protection mechanisms and the heavy taxing of basic commodities.

Jordan’s bilateral and multilateral partners seem to remain either oblivious or unwilling to react before this fact, as well to the erosion of democratic oversight through power accumulation, under the supervision of an international financial institution.

Neither successive Jordanian Governments nor the IMF seem to have much doubted the eventual success of this approach over the past decades. The pursuit of the same path, however, will most likely perpetuate the same outcome: The preservation of relative domestic stability, unaccompanied by the blossoming of a capable, self-sustaining economy.

Reports from Jordan

2018 - The role of public policy in the concentration of powers and social inequality